Chicago, Jan. 8 (Reuters): A judge rejected a $180 million concession agreement between bankrupt United Airlines and its pilots' union on Friday, while the carrier announced it had reached a tentative giveback deal with its mechanics and was close to one with its flight attendants.
The development with the union representing more than 6,000 pilots jolted the company hard as it tries to radically cut costs and restructure after two years in bankruptcy. The two sides head back to the bargaining table, but the pilots said there was no guarantee of success.
Judge Eugene Wedoff said in court that certain parts of the retooled contract gave the pilots undue leverage over the bankruptcy process. 'I come to this decision with extraordinary reluctance,' Wedoff said.
The five-year package would have cut pilots' wages by 14 per cent, providing United with $180 million in annual savings. The deal would have allowed United to terminate the pilots' traditional pension plans and called for United to issue $550 million in convertible notes to the pilots once it emerged from bankruptcy.
Chief among Wedoff's concerns was a stipulation that the concession package could be nullified if United failed to terminate pension plans of other unions.
Federal pension insurers and some key creditors objected to the deal. The Pension Benefit Guaranty Corp, which insures corporate retirement accounts, sought to take over the pilots' pensions in response to the arrangement.
The ill-fated deal said if the concession package was terminated at a later date, United must pay the pilots about $28 million a month for the duration of its stay in Chapter 11.
Wedoff's unusual ruling on pilots overshadowed what was to have been the start of United's biggest showdown with labour ' its formal effort to throw out contracts of mechanics and 21,000 flight attendants. A bankruptcy judge in Virginia allowed bankrupt US Airways to throw out contracts for mechanics and baggage handlers if they do not agree to givebacks in two weeks.